The Securities and Exchange Commission (“SEC”) recently settled an administrative proceeding brought against an individual who provided insurance and retirement planning services whom it alleged had failed to register as a broker-dealer in connection with the sale of fund securities (on which the fund ultimately defaulted).
Specifically, the SEC alleged the individual willfully violated securities laws from approximately December 2008 through September 2013, when he solicited and induced at least 31 investors in three states to purchase approximately $3,750,060 of promissory notes issued by an investment fund. The SEC said that, among other actions, the individual identified and solicited prospective investors, advised investors on the merits of the investment, took customer orders, collected investor paperwork, and received approximately $384,712 in transaction-based compensation from the fund – all while not being registered as a broker-dealer or associated with a registered broker-dealer (as he had been until September 2002).
The SEC subsequently initiated public administrative and cease and desist proceedings on Nov. 1, 2016, pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 9(b) of the Investment Company Act of 1940 (the “Investment Company Act”). The state of California had previously entered a cease and desist order against the same individual in 2000 for similarly acting as an unregistered broker.
Under the settlement, the respondent was ordered to cease and desist from committing or causing any violations and any future violations of Section 15(a) of the Exchange Act. Furthermore, he was barred from association with any broker, dealer, investment adviser, municipal securities dealer, municipal adviser, transfer agent or nationally recognized statistical rating organization; prohibited from serving or acting as an employee, officer, director or member of an advisory board; prohibited from serving as an investment adviser or depositor of, or principal underwriter for, a registered investment company or affiliated person of such investment adviser, depositor or principal underwriter; and barred from participating in any offering of a penny stock. The respondent was also ordered to pay disgorgement of $384,712.54 and prejudgment interest of $54,324.22, to be paid to the estate of the fund whose shares he sold. This individual may have been identified because the investment he had sold imploded, but all those involved in the sale of securities should clarify with their counsel their standing as, or with, a regulated entity.